KUALA LUMPUR (June 29): Hong Leong Investment Bank (HLIB) Research has raised its 2022 gross domestic product (GDP) growth forecast for Malaysia to 5.9%, from 5.5% previously, on a stronger recovery. 

“Despite the external headwinds, Malaysia’s recovery remained favourable in the first half of 2022 (1H22). With the transition to [Covid-19] endemicity and EPF (Employees Provident Fund) withdrawal scheme supporting consumption, we upgrade our 2022 GDP growth forecast to 5.9% (from 5.5%) but expect it to slow in 2H22, especially in the fourth quarter,” said the research house in a note on Wednesday (June 29).

The research firm also lifted its 2022 forecast for the Consumer Price Index from 2.7% to 3.2% as it continues to see upside risk to food inflation. 

On the overnight policy rate, HLIB said its expectation is for another two 25-basis-point hikes in 2H22 (in July to September), bringing the benchmark rate to 2.50% by year end. 

“While market headwinds are aplenty, it is crucial to delve beyond the headlines. Supply chain woes are past the peak, Malaysia is relatively more insulated amid the war, the market has room to stomach higher rates, [there is] appreciation bias to the ringgit from current weak levels, and US recession contagion risk has already battered valuations on the local bourse,” said the research firm.

The research firm said its year-end FBM KLCI target stands at 1,610 points, premised on 15.6 times price-to-earnings tagged at mid-calendar year 2023 earnings per share. At the time of writing on Wednesday, the KLCI had fallen 2.05 points or 0.14% to 1,452.69. 

“ While market choppiness isn’t going to dissipate anytime soon, we feel that bottomed-out foreign shareholdings (20.1% to 20.4% over the past year, below the global financial crisis' bottom of 20.7%) offer some solace for nibbling. 

“Our top picks are a combination of an interest rate upcycle (for RHB Bank Bhd and Affin Bank Bhd), commodity plays (Press Metal Aluminium Holdings Bhd, Kuala Lumpur Kepong Bhd and Dagang NeXchange Bhd), the reopening (Sunway Bhd, Evergreen Fibreboard Bhd and Focus Point Holdings Bhd) as well as value/sold-down stocks (Tenaga Nasional Bhd, Dialog Group Bhd, Bumi Armada Bhd and Kobay Technology Bhd),” HLIB added.